Forex Fibonacci
Forex Fibonacci, The Sequence In Investments
In every trade, there are quite a number of rules some of which remain unwritten but consciously remembered and obeyed by the experienced and skillful trader. The foreign exchange market has quite a number of rules at play which will help you succeed in the business. One reliable tool for success in the foreign exchange market comes in the form of Fibonacci numbers and the accompanying Golden Ratios.
Fibonacci sequence and the Golden Ratio
The Fibonacci sequence and the golden ratio have become powerful and widely applied mathematical tools ever since their discovery in 1202 by Leonardo Fibonacci. It has been noted that the appearance and practicality of these tools go beyond mathematics to areas such as biology, music, art and architecture. In natural practice, the golden rule is witnessed in galaxies, hurricanes, sunflowers, snail shells and DNA molecules.
Apart from the two most common forex Fibonacci trading percentage retracement levels 38.2 and 62.8, there are other important levels which include 33%, 50% and 75%. In the forex market, the Fibonacci can be applied to increase profit levels in three main ways.
Setting Stop Loss Points
Fibonacci can be used to define stop loss levels. If three or more Fibonacci price levels are seen together in a tight zone, it would be advisable for the trader to set a stop loss mark just above or below the position. If at a point the trader trades against a predefined support zone and the prices go below this zone, then it would be advisable for the trader to negate the reason for trading and proceed further to close the position. In this way Fibonacci retracements guard the trader against being controlled by emotions but based on a predefined exit point.
Defining Position Size
Depending on how much risk you are willing to take for each shot of trade, Fibonacci numbers can be handy in defining the position size. If prices are attractive on a given level, you may chose to take more positions than if the price is elsewhere.
Defining Objectives
Locking profits is the main objective behind trading. Using Fibonacci numbers, the trader is able to set profit objectives deciding whether to tighten stop loss position or to bank profits gained. This is done by scrutinizing how patterns compete against a Fibonacci price zone.
Interpretation of Forex Fibonacci Charts
The Fibonacci grid system forex is quite easy to use. On the forex chart, two extreme points are selected and three horizontal lines are traced to intersect the line that shows the trend of the market. In order to interpret charts derived from the fibonacci grid system forex the trader needs to first note the trend of the market, ascertain the highest and lowest swings and then follow the trend at the 38.2%, 61.8% and 50% levels.
Legendary trader W. Gann is a practical example of people who successfully applied Fibonacci numbers and the Golden ratio. The Gann forex trading techniques combined with further use of the Fibonacci tools will guarantee the trader unbelievably long periods of profitable trading.
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